The semiconductor industry is growing fast. Driven by a world of connected things, chip makers are finding a multitude of new applications for their wares, from wearables to industrial equipment to cars. Even in such a market, though, investing in semiconductors is a bumpy ride.

In light of this, investors are presented with a choice: invest in a well-established leader like Intel (NASDAQ:INTC) or an upstart looking to make waves with new innovation like Ambarella (NASDAQ:AMBA). Which one you buy will have a lot to do with how much uncertainty you can stomach.


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Investing in stability in an unstable industry

The name Intel is near ubiquitous with the innards of computers as the company played a crucial role in the rise of the PC. Now that the world is going mobile and electronic parts are getting embedded in all sorts of things, Intel is leveraging its lead to grow into new markets.

During the first quarter of 2018, revenue increased 9% from a year ago. Its key PC market, at half of revenue, increased only 3%. However, its data-centric divisions all grew by double digits. Data center sales are now almost a third of all business and grew another 24% year over year, and the Internet of Things grew 17%.

As far as technology companies go, Intel isn't going to be the most exciting of growth stories. The company is already valued at $250 billion. Nevertheless, management still sees revenue growing in the high single-digits this year, and over the next couple of years Intel plans on getting more efficient with its dollars spent to boost the bottom line. The one-year-forward P/E ratio is only at 13.3, and the company pays a 2.2% dividend, making this giant chipmaker a reliable long-term holding.

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Betting on a future innovator

On the other end of the spectrum is the small specialty chipmaker Ambarella, which had the claim to fame of providing the video chips that powered GoPro's action cameras. Ambarella's fortunes have faded the last couple of years as the action camera market cooled off, and the company is now left with the difficult task of diversifying its sales into new markets.

The good news is that much headway has been made in that department. GoPro is less than 20% of revenue at last report as Ambarella's chips have found a home in the drone and security camera industries. The bad news is that revenues continue to decline, falling 5% in 2017 and expected to fall another 10% to 15% during the first quarter of the new year.

There is hope, though. Management was upbeat early in the year as it talked about computer vision and early interest in its new chips from autonomous drone and car manufacturers. Computer vision -- giving a system the ability to "see" like the human eye and respond accordingly -- holds a lot of promise as machine automation technology advances. An early application for the company's work could end up being the auto industry as several dozen manufacturers have reportedly begun testing the chip's capabilities. However, with revenues in decline and no material results yet reported in this emerging area, Ambarella is a speculative play.

The better buy is...

While Ambarella holds a lot of promise with its advanced video chips and early interest in its computer vision technology, it isn't for every investor. Share prices are volatile as sales and profits will likely be all over the board until the company can find its footing as it recovers from the action camera downturn.

Intel, on the other hand, is a solid play in the semiconductor industry. It has a well-established and highly profitable PC chip segment, is leveraging that into new and fast-growing markets like data centers and the Internet of Things, and is boosting the bottom line and returning value to shareholders. That makes this stock a great core holding for investors looking for growth as well as those who need income from their portfolios.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.